Ford CEO weighs in on the economy, Lincoln and the UAW

You had a big smile at the CAFE rules signing event. In what respect is that good for Ford?
ALAN MULALLY: A new one-national standard is a tremendous development for all of us because it brings together the Department of Transportation, the EPA and California. This is a lot of certainty to our business and to the consumers going forward. It is a very positive development.

CEO Alan Mulally, 66, has led an amazing recovery at Ford Motor Co., but his work isn't done.

Early in Mulally's tenure, Ford took on massive debt, putting even the company's blue oval trademark into hock. It was risky, but by loading up on debt before the financial crisis shut down lending, Ford had the cash it needed to fund its restructuring.

The automaker's restructuring is mostly complete. Ford's credit rating now stands one notch below investment grade, a testimony to steadily paying down debt. A stream of new cars and trucks developed globally are selling well in markets around the world. And a new four-year UAW contract will add just 1 percent a year to Ford's fixed costs.

But Ford Motor Co.'s 9 percent rise in its U.S. sales through October lags the industry's 10 percent gain and increases of 15 percent at General Motors and 24 percent at Chrysler Group.

Lincoln remains a work in progress. And it's uncertain how long Mulally will remain at the wheel.

Q: What do you see for the American and global economy in the next 15 months?

A: In the United States, we see a continuing expansion of the GDP -- maybe 11/2 to 2 percent this year and maybe 2 percent or a little bit more next year. It's a slower recovery than we've had in the past, but it's also recovering from the deepest hole. This is a very positive thing.

I'm very encouraged, too, by the leadership of the country [being] focused on economic development. Whether it's the debt, the budget deficits, the trade deficits -- they're all being looked at on "How do we create an environment where the private sector can continue to expand and the consumers' confidence increases?"

Europe clearly has a lot of uncertainty. Again, the good thing is that the leadership is really trying to address it. That's going to take awhile, so we see zero to slightly improving economy in Europe next year.

Slightly improving?

Yes, but it's going to be very mixed among the countries.

If you're looking at slower growth in Europe, do you think you might have to scale back production plans there?

No, we're in pretty good shape right now. We've just got to watch every element of the ongoing cost structure and also not back off on bringing the new products in because that will really help us.

How affected are you by the flooding in Thailand?

We have a really good plant in Rayong where we make the new Ranger and the Fiesta. The plants there are not affected by the flooding, but what is affected is our suppliers. We are working with all of our suppliers to figure out exactly which parts are affected. We've stopped production. Our best estimate right now is that we'll be able to reopen in the middle of November. We've lost about 17,000 vehicles so far.

In Thailand or globally?

In Thailand.

Are you going to lose any in North America or Europe?

We don't know yet. We don't think so. To finish that, we think that we [will] lose in total about 30,000 by the time we start again in mid-November. We have work-arounds for all the rest of the operation throughout Europe and the United States and Asia Pacific, but we still are assessing that. There's a lot we still don't know. So far, so good.

At least until the Thailand floods, the Japanese automakers were starting to come back. Do you subscribe to the theory that there's going to be much more discounting going forward than there was when they were short on product?

I sure don't think so. This is a tremendous transformation of our entire industry. I think the days of keeping your production up and flooding the market with vehicles that people didn't want or value and ruining the residual values -- we aren't seeing anybody that wants to go back to those days.

You don't think we'll see Toyota being real aggressive to get back to where it was?

You might over the near term, but Toyota is very disciplined on not only making good products but also running a strong business.

Lincoln is flat this year. How do you make it grow? And do you ultimately need a luxury brand?

We think Lincoln is going to be a great brand for us again.

Over time we had invested less [in Lincoln], but the brand is a good brand. It has a good reputation. We have a really good plan now to bring out seven new vehicles over the next three or four years that are fully differentiated Lincoln models. We also have some great work going with sizing our distribution for Lincoln correctly in the right locations, working really collaboratively with the dealers and also taking the customer experience -- not only the initial experience but the life cycle -- to a whole 'nother level of performance, which is what the luxury customers want.

We're still hearing from some Lincoln dealers who ask, "Why would I want to invest $5 million in a store for this brand on unproven product going forward?"

That's always going to be a decision that the dealers will make. We want to help them make that decision.

All we know is -- and what they know is -- that Ford is absolutely committing the resources and they're committing the investment, and it has to be both of us together that make it work. But there's no doubt in anybody's mind about Ford's commitment to the product and to the brand going forward.

Which brands will be Lincoln's competitors in five years?

I think all of the luxury brands: Lexus, BMW and Mercedes. We absolutely know how to make luxury vehicles. We've done it in the past.

Everybody always asks, "Is Lincoln going to go worldwide?" I think when people around the world, especially Asia Pacific, see what the new Lincoln vehicles look like, there's going to be a great pull to have them introduced outside the United States. We're focused on the United States for now because that's where the brand has done the best.

Ford's supplier relations have improved sharply, as measured by supplier surveys. What would be the next areas for improvement in your supplier relations?

I think it's going to be accessing global innovation. We're moving toward more and more collaboration, more long-term agreements, more technology sharing, more co-development of the technology.

The suppliers have a tremendous reach worldwide. So it will be both -- not only accessing the ideas but also getting the value of offering all around the world.

The small pickup segment was doomed, and now GM is coming back into it and Chrysler is talking about returning. Might the Ford Ranger get a reprieve?

We don't have any plans for it now. The market segment is really small.

Most people were in it for fuel efficiency in a smaller vehicle. Now we have a fantastic offering of small and medium-sized cars and utilities, so we essentially have what the customers say they really want and value.

With the new UAW contract, are you fully competitive with Toyota and the other transplants now?

We're absolutely competitive; we'll be fully competitive over the four-year agreement because the gap will just continue to close.

It is a tremendous new agreement for everybody involved. We started this journey five years ago. These are three contracts later, and every one of them has improved the competitiveness of Ford and also treated our employees with respect and appreciation.

The ultimate bottom line to all of this is the fact that we are now continuing to invest -- in facilities and adding 12,000 new jobs and careers. This has reversed many years of getting smaller and smaller.

Chrysler Group CEO Sergio Marchionne has said the UAW's two-tier wage structure basically is not sustainable long term. Do you see that as an issue?

I think the agreement that we have with the UAW and the employees has enabled us to be competitive, and I think it's good.

Some of Ford's dealer-development activities were shelved in the last couple of years. Are you bringing back the dealer-development program?

No. I think the way we're going now by developing the dealers is the way we'll do it going forward.

You're 66. You're probably not going to stay here for another 20 or 30 years. What's the maximum you'd stay?